I was looking for some decent "draw on screen" software and eventually found a product called annotate!pro for $19.95. It works very well with screen and video recording software such as Snagit 9. http://www.annotatepro.com/
There are other "draw on screen" software that you can get for free or a small fee, but either the quality of the drawing isn't very good or the drawings disappear as soon as you finish saving a screen shot. Then there are some that come packaged with expensive presentation software.
There is a pen, highlighter, arrow, rectangle, circle, fine eraser, text, hide drawing, hide desktop icons, erase all drawings, snapshot, email. You can lasso different drawings and group them so you can move them as group.
The text feature is a convenient way to leave yourself notes on your desktop, but they'll disappear when you restart Windows.
The drawings always stay in front of other windows, but you can temporarily hide the drawings, or erase them. When you are finished annotating, you right-click to return to normal cursor mode, however your drawings remain.